Social Security's Hidden Penalties

Are you aware of  Social Security's  hidden penalties, aggressive overpayment recoupment, and looming insolvency that threatens the financial security of current and future retirees. This episode explores little-known aspects of Social Security, including tax penalties, the flawed COLA system, and recent policy changes that make it harder for seniors to maintain financial stability.

Episode 1 Social Security, Howard Beale and Me: https://www.buzzsprout.com/2192481/episodes/13006249

Episode 14 Applying for Social Security: https://www.buzzsprout.com/2192481/episodes/13984944

Contact me at BillMonty04@gmail.com with your comments about social security, the podcast or if you'd like to be a guest on the show.

Chapters

• 0:00 Introduction to Social Security Revisited
• 3:19 Politics and Social Security Challenges
• 5:43 Understanding Cost of Living Adjustments
• 7:46 Tax Penalties and Underpayment Surprises
• 11:10 Government Overpayment Clawbacks and Warnings
• 15:58 Future of Retirement and Next Episodes

Transcript

Speaker 1: 0:01

Welcome to Bill Monty's Guide for Gettin' Older. Today, we're going to be talking again about Social Security. Yeah, you got it Now. For those of you who have been with me for a while, you know that my very first episode back in June of 2023 was some of my thoughts in the history of Social Security. If you're not familiar with it, if you haven't heard it, I'll go ahead and put a link in the show notes. You can go back and find it, or just whatever platform you're listening on, Just go back and look for episode one. Forgive me for the length of that episode and some of the stuff that's in it that we've done away with since then, but I think you'll get the gist of what I'm talking about with Social Security even from that first episode. And then, a little while later, I did a couple of episodes on my journey of applying for Social Security and again, I'll put those links in the show notes for you if you want to go back and hear those. So why are we revisiting it yet again? Well, I think it's obvious if you listen to the news.

Speaker 1: 1:06

Of course, there's a lot of talk with the president administration about changes to Social Security. Some of it has already taken effect. Let me just say that I have tried always to keep this podcast free of politics, and I'm going to do my best to do it here, and I'm going to do my best to do it here. And let me state also that I believe that the problems that are inherent in the Social Security program are the fault of both sides of the aisle, Republicans and Democrats. I believe that perhaps Bernie Sanders is the only person who can claim immunity from the charge of being not sensitive to what's going on or what needs to be done to protect social security. Everyone else, I believe, hasn't done enough to protect it or they're doing too much to do away with it without regard for seniors. With that said, there's no way I can do this particular episode without making reference to the current Trump administration. It just isn't possible. So, for someone who claimed while running for office that he would not touch Medicare, Medicaid or Social Security, he certainly has done a lot to touch them all, and I know he wants to distance himself and say no, no, that's Doge, or that was Elon Musk, or whatever it might be, but I think we all know the truth to that, don't we? Let's not fall for that little gambit that he's playing, and I don't necessarily think it's out of character for him to be doing that. I think if you look at most billionaires or millionaires in this country, they could honestly give a crap about senior citizens, especially low-income senior citizens, and their problems.

Speaker 1: 2:56

Social Security was created back in 1938 by Franklin Delano Roosevelt and, of course, the Congress of the time, because they had to support it and the point of it all was to create this benefit, this income, for seniors so that they wouldn't just go into poverty at the first medical crisis or because they lost a job or because they retired, whatever it might be. As he said at the time, it was never intended to be a complete replacement of income and I think that message got lost along the way over all the decades since 1938, to where many people thought, well, when I retire, that will take care of everything. And I guess it did for some generations. Perhaps my parents' generation was the last one that it really worked for. So here we are with the social security system that's been modified a couple of times.

Speaker 1: 3:51

We have this horrible, antiquated system of deciding the cost of living adjustment that goes back to, I believe, 1974. I could be wrong on that, but I think it was 1974. So, if you don't understand how that works, if you're looking to apply for Social Security, understand that each year there is the possibility not the guarantee, but the possibility of a cost of living adjustment that is based on the rate of inflation of the third quarter of the previous year. So if there's going to be a cost of living adjustment for 2026, it is based on the third quarter of 2025. So that completely eliminates. If everything went to hell after the third quarter, If inflation was like 2.9% which is what I think it was during the third quarter of 2025, and then it jumped dramatically to 8%, let's say like it was during COVID Seniors would not get that benefit of that increase unless Congress did something special. And the last thing I believe that this Congress would ever do is say, hey, the seniors got hurt with this one, let's make up for it, let's do something. Okay, In speaking about President Trump, let me say that at least his administration is looking at doing something such as a one-time payment as opposed to just an increase. Now, whether or not that's the right thing to do, I'm not an expert on. I'm not going to pass judgment on that, but it is at least something positive instead of lip service and just talking, but then nothing, nothing. Nothing happens Now. Will any of that happen? That $4,000 that he's talking about or whatever it might be? Will any of that happen? Who knows? It hasn't happened as a recording of this, which is June 1st 2025.

Speaker 1: 5:44

But the reason for doing this episode again about social security is to try and educate you about what I found out about it recently while doing my income taxes for 2024. Okay, I started receiving my social security benefits in January of 2024, which means I got my first check in February of 2024. If you don't know that about Social Security, you don't get it of the month, you get it the following month. That means when you die, you don't ever get the pleasure of your last Social Security check. You know I opted not to have taxes taken out of it. I said let's roll the dice and let's see what happens. Couldn't really afford it and, in all honesty, the check wasn't so much that I could afford to have more money taken out. I'm already having $174 at the time taken out to pay for Medicare. Couldn't really afford another $100 a check At that point. Why even be taking the Social Security benefit right.

Speaker 1: 6:44

So we go to do our taxes and the lovely lady who did them for us is looking at the amount of money that my wife and I made and she says did you have income tax deducted from your checks? And I said no. And she kind of did this tsk, tsk, tsk sound to her voice and look to her face and said well, you know you really should. I said I know, we know we'd be taking care of it ahead of time, but at the time wasn't really. I'll do it this year, 100%. I'll do it this year, PS folks, I haven't done it this year yet.

Speaker 1: 7:20

And she said well, you're going to have to pay a penalty. And I said what she said you're going to have to pay a penalty for underpayment of income tax. Throughout the year I had never heard about this underpayment penalty at all. And again, if you go back to those earlier episodes, in all the research I did, all the questions that I asked of the Social Security Administration going onto their website, don't remember ever seeing this underpayment penalty talked about. So I wasn't sure what it was all about.

Speaker 1: 7:54

And I asked and she said well, you've made so much money that a percentage of your social security benefits can be taxed and you didn't pay it quarterly. So you're going to have to pay the penalty plus an interest rate. I didn't pay it quarterly. What are you talking about? Why would I pay it quarterly? I pay it here. Oh no, the government expects you to pay quarterly when you owe income tax on your Social Security, Not when you're paying income tax on everything else.

Speaker 1: 8:25

If you're getting your Social Security benefit and you're not taking taxes out, they think you're up to something. Not, you're just some senior trying to scrape by, but you must be up to something nefarious. I could say that the reason they think that is because they believe everyone is up to something nefarious, because they're always up to something nefarious. But that's a very pessimistic point of view, and I said I wasn't going to talk about politics. So, moving forward, I finally was able to find out some information. So I want to read to you exactly what this is all about, Because, my friends, if you're going to apply for Social Security, you should know this stuff. I didn't know it, but I'm here to pass this information on to you.

Speaker 1: 9:05

Up to 85% of your Social Security benefits can be subject to federal income tax, depending on your combined income that's adjusted gross income, non-taxable interest and half of your Social Security benefits. You can choose to have federal income taxes withheld from your Social Security payments. Yes, we know that, but if you don't have taxes withheld, you may need to make quarterly estimated tax payments to avoid potential underpayment penalties. So what is an underpayment penalty? The IRS may assess a penalty if you don't pay enough tax throughout the year, either through withholding or estimated tax payments. Generally, you can avoid this penalty if you owe less than $1,000 in tax after subtracting withholdings and credits, or if you paid at least 90% of the current year's tax or 100% of the prior year's tax, whichever is smaller. I'm lost now. I don't even know what that means. The penalty is calculated based on the amount of underpayment, the period it was underpaid and the applicable interest rate for underpayments.

Speaker 1: 10:18

It seems like with Social Security, the government wants to do everything it can to penalize you for taking the money that you have paid into it your entire employment career, paid into it your entire employment career. Now, despite what people think, what I have heard politicians say, especially those who identify as Republicans or MAGA or whatever they're calling themselves these days they believe that social security benefits are an entitlement and therefore can be reduced or taken away whenever the government feels like it. That is not true, but it is the pervading thought that is behind trying to dismantle Social Security payments. So if you are not politically active, if you don't contact your senator or your house representative at the state and at the federal level, you might need to think about doing that, Because if you are one of the millions of people relying on Social Security to get you through month to month to month, you should be worried. What's the evidence that you should be worried, besides the fact that they're always talking about taking it away If, for some reason, no fault of your own, it is decided that the government overpaid you?

Speaker 1: 11:47

You're supposed to receive $1,000 a month and they paid you $1,200 a month and you didn't notice it, because you're 85 years old and it just goes direct deposit into your bank and you just know some money has come in, but you're no longer paying that close of attention to it. I'm not saying that, oh my God, all old people are feeble and can't keep track of these things, but the fact of the matter is some of them are, and some of them are making anywhere close to a thousand dollars a month with their benefits. But if the government does that, they can start withholding payment. Even if it's not your fault, if you did nothing wrong at all, they can start withholding 10% of your monthly benefit. That's the way it was until recently. So when I said I can't talk about this without going after the current administration a little bit, after only a few months in office, the Trump administration decided they automatically, without warning, will just start taking 100% of the overpayment out of your check 100%. If the overpayment was that $200 from $1,000 a month to $1,200 a month they wouldn't take just $20 a month. Until they get paid back the 10%, they're going to take $200 a month for however many months.

Speaker 1: 13:07

That went on, Even though it was not your fault. You did nothing at all to cause this. There was so much pushback that even this administration had to back off. But currently it is 50% of the overpayment and there is a grievance procedure, but it takes so long that it's all going to be taken back anyway by the time you finally get your grievance done and chances are, frankly, folks, you're not going to win Because their position is going to be listen, you knew you were getting $1,000 a month and it became $1,200 a month. What did you think happened? Well, you thought maybe a cola kicked in. You thought I don't know. They found out they weren't paying me enough and now they are. Whatever it might be, none of that matters. You are automatically in the wrong by being an American citizen in the eyes of this government.

Speaker 1: 13:59

There are other things we could talk about, but I want the takeaway from this to be for those of my younger listeners. Now I look at the demographics of people who listen to this. The majority of my listeners are 55 years of age and older, but I do have some people that are in the 30 to 40 market and the 40 to 50 market, and you know I would say the 50 to 60 market. You should listen to me invest, invest wisely. Or take money and just put it into a savings account or stuff it under your mattress at home. Social security should never become insolvent, but it will. They're saying. By 2034, only 80% of benefits will be able to be paid because of the diminishing workforce of people going into work and because of so many more people coming of retirement age baby boomers, me and those who are around my age a little bit younger so so much money is going to be going out, there's not enough money coming in. But it's amazing to me that we always have money for a war or new missiles or whatever the hell this golden dome thing is it's supposed to be. We have money to build walls. We have money to do everything except make sure that seniors who have worked so hard their entire lives for this country, living in this country, believing in this country, Americans, should be taken care of.

Speaker 1: 15:28

If you're younger, if you're in act two of your life right now, trust me when I say act two goes really fast. And you're in act three at 61 years of age and up way sooner than you ever thought you would be. And you, my friends, should be concerned, you should even be frightened, Because senior services are starting to go away. If you think that Medicare is going to be there, if you think that Medicaid is going to be there, you are sadly mistaken. A couple of episodes down the road I'm going to talk about what's happening with Medicare and Medicaid, but for now I just want you to think about Social Security and about your future and how you are going to live once you retire or if, God forbid, something happens and you can no longer work when you're an older American. There are a lot of great things about getting older, but one of them that's frightening as hell is not being able to ensure that you will have a roof over your head every single month, and we're heading towards that. So let's remember, as I always say my friends, to be kind, because we're going to need a lot of kindness in the upcoming years if things don't turn around politically in this country and if we don't start caring for people a little bit more.

Speaker 1: 16:56

I want to thank you for sticking to the end of the episode. That means so much. As I've mentioned before on the various platforms like Spotify and Apple, it looks at how many people stay from start to finish. That helps promote it. So I thank you because by doing that, you're helping me to build the show. I also want to remind you to please hit that subscribe button. Why should you do that? Well, one, it's free. That's a benefit for you, right? And two, you'll be notified of upcoming episodes, which means I don't have to worry about how to get in touch with you through social media or anything like that. It'll just tell you automatically hey, new episode of Bill Monty's Guide for Getting Older.

Speaker 1: 17:34

And speaking of future episodes, I want to let you know that our next episode will be the first of what I hope are a series of interviews with the average, ordinary American senior. By average I don't mean boring by average, I mean these are not people that have you know. They're not superstars, they're not movie stars, they're not super politicians. They're people who have lived their lives day to day. They've made it from day one to the day that they're in right now and it's their stories and their lives. And our first one is going to be our next episode. It's my interview with Harold, a man from New Jersey, and it was delightful to speak with him and I think you're really going to enjoy that episode a lot. It's a little bit longer than most of our episodes, much like this one, which got a little bit longer, but please so that's another reason Hit that subscribe because you don't want to miss my interview with Harold. I promise you you won't be sorry. Please remember to comment, to share with your family or your friends. If you don't like it, share it with enemies. Share with everyone, please. We just want to get the word out there.

Speaker 1: 18:46

We've got some new listeners in the last month. I mean, quite a few of you have come in and I am so grateful. Welcome, welcome, welcome. Sorry to mention this earlier. So nice to have you here and I hope that you're sticking to the end of the episode to hear this. But please stay with us and if you are new here, you can always write to me at BillMonte04 at gmailcom and let me know what you think about the show or how your life's going, or if you would like to be interviewed, like Harold was. That's BillMonte04 at gmailcom, and I just want to thank you for being here. Until next time, as always, my friends, please be safe, be kind and be here when that great theme music starts playing in 3, 2, 1. Shoulder, you're not alone, so start feeling bolder. Welcome to Bill Monty's guide for getting older.